America’s Legacy: Borrow, Borrow, Borrow and Spend, Spend, Spend-Hey, You Only Live Once

The world as we know it has become a weird series of incomprehensible twistings of truth, reality, and meaning.  We put our trust in people like Laffer who had a “Curve” to tell us how to borrow and spend to create jobs and prosperity.  It didn’t.  Alan Greenspan had his own formula he just “knew” would be the economic medicine for a healthy America.  We overdosed.  And later, Greenspan admitted that he had got it all wrong and was sorry, very sorry. 

Just last year a reader wrote in to TPJ Magazine to criticize me for not being “cognoscente” enough to comment on economics.  He said that until I understood how a country like the United States operated as the masters of their own currency and printing presses, that I should refrain from applying meaningless balance sheet principles of simple ledger accounting to our National Debt.  Life, alas, he told me was not that simple.  Borrowing and spending mattered naught, he went on, because a “sovereign” country such as the United States did not need to worry so much about paying our debts.  We had our own printing presses and mint, so enjoy, and don’t sweat the small stuff, like paying our bills.  To wit, everything was under control.  Yeah, right.

Life will go on, he indicated, in a sovereign currency country like America, and we need not worry so much about paying Japan and China back right away.  If we need more money just float some more Treasury Bills and borrow more money.  And don’t worry if we don’t sell all the bonds and bills that we bring to the world market for the purpose of borrowing money.  The Fed, like the Lone Ranger to the rescue will buy the shortfall bonds left over that nobody else wants.  Quantatative Easing I believe it is called.

Long ago I decided that borrowing and spending by our government was cheating and unconstitutional, but hey, what do I know?  Probably just a Freudian hiccup of mine to even mention it.

That’s right, Q.E. can cure a thousand ills.  Life for government could breathe longer, uninterrupted breaths as long as we could just find the money to keep the plates a-spinnin’.  If successful, we could continue to pay the big bucks to our elected officials, our government employees with their lucrative pensions and healthcare plans, not to mention the armed forces that protect us all from terrorists.  While retired senior citizens here in America must fear the financial fiscal knife, the cliff, and the sequestering that reduces our benefits we get from government.  While those in government get to continue to give themselves raises and benefits, ad infinitum!

Countries who lend us money seem to  trust the United States implicitly (But pay no attention to that man behind the curtain).  No one country even knows how much we owe them I would bet.  And all along we can manipulate our own dollar and print more of them by cracky, to our hearts’ content.  Lordy!  We da man.  We can walk on water and fear no man or no country.  And my simple view that duh, maybe we should like, be responsible to pay back the money we borrow was not what the gentle reader had hoped to see in my column in question.  I was deficient in the “cognoscente” sense of understanding the National Debt and why it was immaterial how much we as a nation ever borrowed to run the government or pay our bills.  Wow.  That takes a load off.  Does Andersen Accounting still exist?  So why even debate the Debt and paying it back?  Why get scared and confused about it all?  Why not just keep on believing in Federal Reserve Notes and that they will hold up as real currency until hell freezes over?  Why does Congress get their panties in a knot ever so often over our giant debt, then?  Who knows?  Is there a cognoscente in the house?

And over $16 Trillion in debt later, what with the stock market in April 2013 soaring like a rocket, gold and silver plunging to the floor after all that crazy ride to the moon, you got to wonder, what gives?  Maybe the gentle reader was right.  Why would I be foolish enough to surmise that a day of reckoning would ever come home like a buzzard to roost on our doorstep?  As long as people will accept dollars as payment for services, to pay for oil purchases and other world commodities, why get all uptight about it all?  Relax.  Buy more stock, they tell us.  Go shopping at Wal-Mart.

Heck in 1965 when I was stationed in Da Nang, Viet Nam, nobody sweated the US dollar one way or the other.  In fact the Viet Namese merchants would give you a better deal on most any commodity if you gave them greenback dollars.  The local currency was called the pie and the dong, but no sailors, soldiers or Marines ever used them.  We bought goods in the city with US greenback dollars because the dollar was highly sought after.  As military men we all had been given standing orders not to give up our dollars directly to South VN vendors in trade, but we did.  No one paid attention to those limp noodle standing orders and went for the better deal you could get by rendering greenbacks in payment for goods. Dollars were in demand.  End of story.  Value and reality are often merely what you think they are, not what they really are.  Geez, now I’m talking doublespeak, just like the K-Streeters in DC.

Reality comes in large doses sometimes.  Like, who could have known that our own dollar would strengthen simply because the nations of Europe and other points overseas have gone down the financial tubes tied to the Euro Dollar?  Take Greece.  The Germans will thank you for that.  Or Spain.  Or Cypress, neat little country whose banks steal depositor’s money without any guilt or promise to pay it back?  Did you ever?

Pretty strange times, these.  With most of the world in financial chaos is it any surprise that the American dollar is the currency the world runs to?  Or that America with all the holes in its financial bucket, is still considered to be the greatest and safest place to invest?  I have it on good authority that banks were selling government securities, e.g., T Bills in blocks of $100M or more for a NEGATIVE interest rate of say .25%!  To protect your money from world and Wall Street harm you tied up a sum in T Bills and paid the government itself an interest rate of .25%.  Sounds like paying Al Capone protection to keep harm from coming to your business, only in the real case of today’s financial goings-on you are trusting the United States as the fiduciary keeper of large sums of your cash and receiving NO interest for the safekeeping.  You are paying the United States government for protection, get it?  If you do get it, congratulations, because I don’t.  Is it me?  Probably.

I just hung up the phone with a former colleague in the municipal bond underwriting business.  Just at the end of last year you could buy a strong General Obligation tax bond at par and get a 4% tax free yield and a term of only 6 years until maturity.  Try that today and if you can find one just expect to pay a premium of say, 130%!  That’ll get the yield down to less than 1%.  How can that be?  The Fed has interest rates choked down to nothing, and you got to wonder WTF is going on.  The United States and its states and cities are bankrupt or near broke and yet you cannot get any yield on new issues of their municipal bonds.  So why are they so proud of their bonds?  Besides that, nothing is available for sale!  Choked down to nothing!  Stocks, anyone?  How about a Jumbo CD for a year at about .25%?  Anybody other than the crazies who got singed last time in the stock market ready to go all in again?  Be my guest, but not me.   

America is out to lunch, nobody can do business on anything legitimate, and nobody knows what to do.  Just how many 100s of  trillions of dollars of derivatives does Goldman and J.P. Morgan really hold, anyway?  I asked my friend what he was doing with his own money, knowing that he would not resort to selling magic bonds made of air, recently decried as “Derivatives.”  He said he was just twiddling his thumbs.  He had cash but nowhere to go.  That is the only reason I am bitching is that bonds do mature and are called.  So lots of cash is floating around earning ZIP because there is nothing to buy that gives a good fixed-income yield like a bond that will make it worth your time.  Oh, maybe you can get a Treasury to pay you $500.00 per year in TAXABLE interest on $100,000.000 invested for a year.  Swell.  Like kissing your sister if you are retired and needing to supplement your income to buy beans and cornbread. Especially when Washington is talking seriously about cutting Social Security benefits, Medicare, SCHIPS, you know the drill.  Peachy keen.  Geez, did the world fall and hit its head?

You can try waiting it out.  Pretty soon Wall Street will surface with a brass band and razz-a-ma-tazz new securities offerings probably paying 5%.  I had a nice block of munies mature last September and have been looking for something to buy.  Still haven’t collected any interest or bought new bonds.  The boys in the back room of Goldman-Sachs are like a bunch of vultures waiting to kill something, I wager.  Looks like the cash ain’t going anywhere soon.  There is nothing to buy that will get some decent yield.  Wall Street is sitting on over a Trillion cumulative dollars of customer cash like my paltry fraction, just waiting to be placed into some story bond or other questionable security with high yields.  The strong bonds with a fair yield are non-existent.  But Wall Street never let that stop them.  Get ready for some more derivatives to hit the street, sports fans.  Who said, “There’s a sucker born every minute?”

Timing is everything.  Just when the investor gets sick and tired of getting no interest on his capital (surplus cash from matured bonds and such) the Wall Street gang will come up with a new security to fill the need and suck up the surplus cash.  Like maybe something on the order of Lehman Brothers stock?  Several investors will succumb and buy in for lack of air.  And lack of income on their capital in deep freeze.

How about a little more gold and silver, Scarecrow?  Ready to spend another 2 or 3 years, waiting, waiting, waiting for these precious metals to go up in response to our dollars being inflated by our own printing presses and continued borrowing and spending?  It appears that gold and silver has come to a new and strange place (a cliff perhaps) where maybe US dollars are even better to have than gold bullion.  Say what?  Our inflated paper dollars backed by a $16 Trillion debtor nation are more in demand than gold bullion coins?  Seems strange, but when the banks of Cypress arbitrarily take 25% of a hundred grand from an innocent depositor as a deposit fee, all bets are off for the likelihood of rational earthling behavior.  Have you checked your bank account recently for bank withdrawals of your capital?  Strange world.

“Turn turn, my wheel!  All things must change
To something new, to something strange;
Nothing that is can pause or stay;
The moon will wax, the moon will wane,
The mist and cloud will turn to rain,
The rain to  mist and cloud again,
To-morrow be to-day.

The Potter’s Song, Henry Wadsworth Longfellow, 1893